9911796707
TMI Blog2015 (10) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... 003-04, claiming following substantial question of law:- "Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in reckoning the period for long term capital gains from the date of purchase of convertible debentures instead of actual date of allotment of shares on conversion from debentures?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent-assessee is an individual. He filed his return of income for the assessment year 2003- 04 on 27.11.2003 declaring total Income of Rs. 4,13,110/- including long term capital gain amounting to Rs. 25,97,147/- which was claimed by him as exempt under Section 54F of the Act. He was allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, (1983) 141 ITR 45 (Cal) and pronouncement of Bombay High Court in Commissioner of Income tax vs. Santosh L.Chowgule and others, (1998) 234 ITR 787 (Bom.). 5. Conversely, learned counsel for the assessee placed reliance on Sections 47(x) and 49(2A) of the Act to contend that in case of secured convertible debentures, the date of acquisition of the shares received on conversion would be the date when originally convertible debentures were allotted to the assessee. 6. It would be expedient to reproduce the relevant statutory provisions which read thus:- Section 2(42A) "2(42A) short- term capital asset means a capital asset held by an assessee for not more than thirty- six months immediately preceding the date of its transfer: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set is acquired by the assessee." 7. Section 2(42A) of the Act defines a short term capital asset and in case of shares where the assessee holds the said shares for 12 months or less than 12 months, it shall be short term capital asset. Clause (f) of Explanation I(i) to Section 2(42A) of the Act states that in case of capital asset being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset. Section 47(x) and 49 (2A) were inserted by the Finance (No.2) Act, 1961 with retrospective effect from 1.4.1962. Section 47(x) provides that any transfer by way of conversion of bonds or debentures, debenture-stock or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said shares between 23.12.2002 to 10.3.2003 in different lots. This shall result in long term capital gains as the shares shall be deemed to have been held for a period exceeding 12 months by the assessee. 9. The Tribunal while rejecting the contention of the revenue and upholding the order of the CIT(A) had recorded in its order dated 17.5.2007, Annexure A.III as under:- "3. We have considered the rival submissions and perused the material available on the file. The assessee declared total income of Rs. 4,13,110/- in its return filed on 27.11.2003 alongwith copy of audit report. The assessee is a share broker, showed capital gains of Rs. 25,97,147/- on the sale of 27,147 shares of TELCO Ltd which were claimed exempt under section 54F o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 995 with effect from 1.4.1996 to clarify the provision in the case of bonus shares, the date of acquisition should be taken as date of allotment of such shares and computation of capital gains accordingly. Circular No.717 dated 14.8.1995 makes the provision very clear. The cost of acquisition of convertible debenture is deemed to be the cost of shares by virtue of deeming provision of Section 49(2A) and such fiction has to be taken its logical end. Therefore, the period of 12 months under Section 2(42A) proviso has to be reckoned from the date of acquisition of convertible debenture. Our view is further fortified by the decision of the Ahmedabad Bench of the Tribunal in the case of Smt.Roda vs. ITO (ITA No.1069/AHD/96) wherein it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the equity shares held earlier and the preference shares acquired in exchange thereof were not the same. It was held that in such circumstances, irredeemable preference shares issued to the assessee being different from the equity shares issued in lieu thereof shall be deemed to have been held by the assessee from the date of their issue and not from the date of issue of the equity shares. Thus, the pronouncements cited by the revenue do not come to its rescue as those cases related to conversion of financial asset into another form of asset where there was no right accruing on the date of acquisition, whereas in the case of convertible debentures, a right is appended to the debenture for the debenture holder to receive shares on conv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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